July 21, 2023
The Federal Reserve has launched FedNow, a new real-time payments system that will allow Americans to send and receive funds instantly, 24 hours a day, seven days a week.
FedNow is competing with private sector real-time payments systems, but many banks have agreed to participate because it will allow them to expand the services they can offer clients. Unlike peer-to-peer payments services like Venmo or PayPal, which act as intermediaries between banks, payments made via FedNow will settle directly in central bank accounts.
FedNow’s initial launch includes 41 banks and 15 service providers, ranging from community banks to industry giants like JPMorgan Chase, Bank of New York Mellon, and US Bancorp. Furthermore, the Federal Reserve plans to expand its reach by onboarding more banks and credit unions throughout the year.
Smaller banks, which often connect to FedWire via larger lenders, encouraged the Fed to develop FedNow, arguing that it would allow them access to real-time payments without having to pay larger competitors for the service. FedNow will not charge consumers, although it’s unclear whether or how participating banks will pass on any costs associated with the service.
The new system is expected to benefit consumers and small businesses the most, addressing the needs of smaller banks that sought access to real-time payments without relying on larger competitors. The Independent Community Bankers of America expressed their support for FedNow, believing it would provide fair pricing and better service options.
The sources for this piece include an article in Reuters.
